Spending Rule a Long-term Solution to Spending Woes: The case for capping government spending to inflation plus population growth.

Commentary, David Seymour, Local Government, Saskatchewan, Uncategorized

 

The provincial government’s proposal for a 2009-10 expenditure freeze was ad-hoc and abrupt. A long-term rule limiting total government expenditure increases to population growth plus inflation could avoid the need for such drastic measures and the surrounding turbulence. In a province susceptible to the resource cycle, such a convention could make government more efficient and budgeting more predictable.
The deficit threat and Finance Minister Gantefoer’s proposed response—a spending freeze—can be taken as the accompaniment to recent events. The result of cutting income taxes, promising municipalities and school boards more money, paying off long term debt, shelling out on infrastructure and, of course, a crash in potash prices. 
However, let’s look at the long-run spending patterns and the political culture behind them to see if dynamics exist which are just as responsible for the shock as are recent one-time events. The most obvious is the growth of government spending above inflation and population growth.
From 2000 until 2009, spending per person increased by $258 per year over and above inflation with a pronounced uptick in the past year. Few people in 2000 seriously argued that government in Saskatchewan was dramatically too small, and needed to increase immediately by $2,580 per person. Yet that’s what has happened, merely over the past decade.
Some will point out the economy also grew and that, as a percentage of GDP, provincial government expenditure has stayed more or less constant. True, however most sectors consume less of GDP and produce more over time. Take agriculture. Over roughly the same period in developed countries, agricultural revenues dropped by a fifth to 1.7 per cent of GDP from 2.1 per cent. Meanwhile there is more food produced than ever before, so much so that developed countries have an obesity problem.
But has the extra $2,580 per year over the past decade been matched with proportional outcomes? A look at some key indicators suggests it didn’t. Suicide and infant mortality rates did improve.   Life expectancy improved at a rate of 3.7 weeks per year, but against a background rate of 14.4 weeks per year from 1921 to 2004. Meanwhile crime rates rose and educational achievement fell over that period (according to the OECD’s Program for International Student Assessment).  Income inequality measures deteriorated very slightly. Government spending now soaks up $2,580 more inflation adjusted dollars per capita per year than it did a decade ago, and for patchy improvements at best.
A look at the political culture which produces these results might shed some light on why. Try this simple exercise: Print off the 2009 provincial government throne speech and mark each paragraph either “platitude” (for example “next year’s economic recovery is expected to be widespread”), “result” ( “[processing] times were cut by 24 per cent, despite a 47 per cent increase in applications.”) or “expenditure” ( “an additional $1.2 million has been added to enhance their training”). If you do this exercise, you’ll find the vast majority of the 186 paragraphs have no measurable content. Of those remaining, 17 are promises to spend more money and 14 are results. Only a handful of the expenditures are actually paired with one of the results. 
If most advertising promises “more for less,” it would seem that the government has gotten things back to front. When it sets an agenda for the year, promises to spend are mostly disconnected from and slightly more common than promises to get results.
Taken together, we have a public sector that improves its measurable output slower than the rest of the economy and a government that sees expenditure announcements as more important than performance. That means constantly increasing government expenditures which put Saskatchewan one potash crash away from a fiscal crack-up.
Implementing a law that expenditures cannot exceed inflation plus population growth unless voters specifically approve a special project (stadium anyone?) would go a long way to improving the situation (and perhaps the law should be endorsed by voters in a referendum to make it stick long-term.) Doing so would remove the temptation to simply ask “how much can we spend?” and shift the political conversation towards “how do we get better results from finite funds?” It would improve the efficiency of government, and avoid the Finance Minister having to do it abruptly anyway.